Townsquare Media, Inc. (TSQ) Earnings

Management highlights

- Strategic Transformation * Town Square Media has completed its transformation from a legacy broadcast company to a digital-first local media company focused on markets outside the top 50 U.S. cities * Digital revenue now makes up 59% of total net revenue (vs. an average 30% for competitors), and digital profit accounts for 63% of total segment profit, both all-time highs * Digital will remain the company's primary growth engine and the focus of most future investment capital - Digital Advertising (Town Square Ignite) Operational Updates * The capital-light third-party media partnership model for programmatic advertising grew from 6 partners generating $6 million 2025 revenue to 13 partners in Q1 2026, and is on track to roughly double 2025 full-year revenue in 2026; management projects this segment will reach $50 million in annual revenue with a ~20% profit margin within four years, with the goal of becoming the leading programmatic provider for local media outside major markets * Unique monthly visitors to O&O digital properties averaged 25 million in Q1 2026, up from 20 million in Q4 2025, reversing prior decline from AI search headwinds; hyper-local content focus plus growth in social, direct, newsletter and app traffic drove the audience stabilization - Town Square Interactive Operational Updates * Revenue declines are driven by a purposefully reduced sales force size following 2024-2025 restructuring; the restructuring created a smaller but more productive, higher ROI sales team * Profit margin expansion comes from 2023 customer service model restructuring, sales structure changes, and AI-driven efficiency gains across website creation and customer service * Management is rebuilding the sales force to prior levels, which will take time, and expects to return to month-over-month revenue growth as early as Q3 2026 - Broadcast Radio Operational Updates * Town Square outperformed the broadcast industry and gained local and national market share in Q1 2026 per Miller Kaplan estimates, driven by differentiated local content * Management continues to carefully manage expenses to maintain strong profit margins, and expects long-term digital growth to offset ongoing gradual broadcast revenue declines - Capital Allocation * Top priority is organic investment in digital product, technology, sales, content and support teams to maintain competitive advantage * Excess cash flow will be used for debt reduction and to support the company's current dividend; the board approved a $0.20 per share quarterly dividend (80 cents annual, ~12% current yield)

Guidance

- Q2 2026 guidance: Net revenue is projected between $114 million and $116 million (midpoint is flat year-over-year); adjusted EBITDA is projected between $24 million and $25 million - Full year 2026 guidance: Management reaffirms prior guidance of total net revenue between $420 million and $440 million, and adjusted EBITDA between $87 million and $93 million, including ~$8 million in expected political advertising revenue, in line with 2022 election cycle levels - Digital advertising: Full year 2026 growth is expected to remain in the high single digits, with growth accelerating in Q2 and the back half of the year from Q1's 7% growth rate; programmatic revenue is expected to grow over 20% year-over-year again in Q2 - Town Square Interactive: Q2 2026 revenue is expected to decline ~8% year-over-year, with a much smaller sequential quarterly decline of ~2% quarter-over-quarter; strong profit margins are expected to continue for the full year 2026, matching 2025 levels - Broadcast radio: Q2 2026 ex-political revenue is expected to see similar year-over-year declines as Q1; full year 2026 broadcast segment profit margins are expected to average the mid-20s, matching 2025 levels

Segment performance

Total Company: Q1 2026 net revenue was $96.8 million, a 1.9% year-over-year decline; adjusted EBITDA was $16.4 million, a 9.7% year-over-year decline. Digital segments combined accounted for 59% of total net revenue and 63% of total segment profit in Q1 2026, both all-time highs. 1. Town Square Ignite (digital advertising segment): Q1 2026 net revenue grew 6.8% year-over-year. Programmatic digital advertising (65% of 2025 segment revenue) grew 21% year-over-year; direct sales of owned-and-operated (O&O) digital assets grew 10% year-over-year; indirect remnant revenue declined 37% year-over-year but grew sequentially over Q4 2025. 2. Town Square Interactive (subscription digital marketing solutions segment): Q1 2026 net revenue declined 7.9% year-over-year, in line with expectations. Segment profit margins expanded to 33.7% year-over-year, an increase of 1.2 percentage points. 3. Broadcast radio segment: Q1 2026 total net revenue declined 6.6% year-over-year; excluding political advertising, revenue declined 6.9% year-over-year (a moderation from 2025's 8% annual decline). Segment profit margins dipped to 19% due to seasonal factors, which is typical for Q1.

Risks & headwinds

- AI search traffic headwinds continue to impact O&O digital audience, though management has stabilized audience growth through alternative traffic sources - Gradual secular decline in legacy broadcast radio advertising revenue remains an ongoing headwind, offset by digital growth and expense management - Macroeconomic pressures, including rising energy prices and geopolitical conflict (Middle East), are straining small and medium business clients, leading to shorter advertising booking windows and delayed spending decisions - Rebuilding the Town Square Interactive sales force to prior target size will not be completed until 2027, leading to continued near-term revenue declines - Indirect remnant digital advertising revenue will continue declining through the first seven months of 2026, with a projected full-year decline from $12 million in 2025 to $9 million in 2026 - The company's term loan carries floating interest rates, so elevated interest rates increase interest expense, though rate cuts would flow directly to increased net income

Analyst Q&A

• Q: What drivers support the expected return to month-over-month revenue growth for Town Square Interactive in the second half of 2026?

  A: Churn has improved significantly, returning to historical low levels after spiking during the 2023-2024 customer service model restructuring, with Q1 churn better than 2025 and Q2 pacing even lower. AI tools have boosted efficiency and profit margins, while the company is gradually rebuilding its smaller sales force, which now generates higher revenue per rep than prior structures. These combined factors are expected to drive sequential monthly growth starting in the second half of the year.

• Q: Can the white-label digital media partnership program attract larger station groups, or will growth remain limited to smaller operators?

  A: The program is currently growing quickly, with 13 current partners (up from 6 in 2025), a full pipeline of dozens of interested local media companies including radio, TV, outdoor and print, and existing partners are on track to more than double their partnership revenue in 2026. The solution works equally well for operators of all sizes, and while no large multi-station groups have been announced yet, there are ongoing conversations with larger groups and the model is proven scalable for larger organizations.

• Q: Given the program operates in top 50 markets through partners, has the company changed its long-standing acquisition strategy to focus on top 50 markets?

  A: The media partnership program has found success operating in top 50 markets through partner properties, and the company is comfortable offering its digital advertising solutions in these markets via partnerships. The core acquisition strategy remains unchanged: the company still prefers to acquire broadcast and O&O properties only in markets outside the top 50, where it is most highly differentiated.

• Q: Where does Town Square Interactive stand in rebuilding its sales force to the target steady-state size?

  A: The sales force was reduced by 40% during restructuring, and the company will not return to the prior target headcount until 2027, and has only recently expanded its recruiting team to accelerate hiring. Despite the slow rebuild, lower churn, incremental sales team growth and higher revenue per rep are expected to be enough to deliver month-over-month revenue growth starting in the second half of 2026.